We love you, Alan
Oh, yes we do.
We love you, Alan
And we'll be true.
When you're not with us,
We're blue.
Oh, Alan, we love you.

SAN FRANCISCO -- In the wake of Tuesday's impressive

rally, there will be a lot of talk about how the market went up "in the

Fed's

face," or "despite" what the Fed did -- which was raise interest rates and give no indication it will stop doing so anytime soon.

Love is not only a many splendored thing, it can also make people -- and markets -- do things that look very strange. The object of the market's adoration is -- of course --

Alan Greenspan

, the chairman of the Federal Reserve.

If the question is why did the market rise so smartly when the Fed tightened, "the answer must be 'the market is looking over the valley and saying the economy will slow and the Fed will take its foot off the break,'" said Hugh Johnson, chief investment officer at

First Albany

. "You don't have to worry about overkill and a recession."

A belief that the economy will slow but not stall is the reason economically sensitive and cyclical names have revived in recent weeks, Johnson said. In other words, it's the latest sign of investors' faith in, and ardor, for Alan Greenspan.

Johnson is the epitome of affable, especially among Wall Street types. Others of a, shall we say,

less diplomatic

bent, suggest the market's reaction to the Fed is evidence of the market's disrespect of Greenspan rather than affection for.

"The market has faith Greenspan has no..." (how shall we say?)

guts

, according to Jim Bianco, president of

Bianco Research

of Barrington, Ill. "That he's basically going to raise rates as long as it doesn't bother anybody. The minute it causes pain, he'll stop and may even consider easing."

Bianco recalled how the central bank rapidly switched from a tightening stance to produce three rapid-fire easings in the late-summer/early fall of 1998, when financial crises in Asia and Russia threatened the bull market. The central bank's effort to ensure (more than) ample liquidity ahead of Y2K is another example cited by the research chief (among others) of how "Greenspan is basically talking the talk but not walking the walk."

Many of Greenspan's critics agree that raising margin requirements is the single most significant act the central bank could take to show it is serious about reining in the market and (by extension) the economy. Yet, Greenspan -- he of the famous "on the one hand/on the other hand" answers -- has been uncharacteristically clear that he doesn't believe raising margin rates is prudent because it would punish individual investors.

Bill Meehan, chief market analyst at

Cantor Fitzgerald

, observed margin debt has increased some 50% in the past six months, culminating in a 8.9% jump in

February.

"I find it hard to believe the Fed raising margin rates could lead to a panic, but that's clearly what Mr. Greenspan is deathly afraid of," Meehan said. "At some point, the Fed is going to surprise the market, but it's getting away from him. The Fed is more afraid of the market" than the market is afraid of the Fed.

Whether you believe Greenspan is a hero, goat or paper tiger, one thing is clear: The Fed's rate hikes thus far have done little to stem the stock market's momentum or the economy's strength.

Since the Fed began its current tightening cycle on June 29, 1999, the

Dow

is up 0.8%, the

S&P

is higher by 10.5% and the

Nasdaq

is up a whopping 78%.

"It's clear where the speculative money is going," Meehan quipped.

Meanwhile, the

gross domestic product

rose 5.7% in the third quarter of 1999 and 6.9% in the fourth. Additionally, the

Bridge/CRB Index

was up 12.8% and crude prices up 55.8% since June 29 heading into Tuesday's session, according to

Aubrey G. Lanston & Co.

The Fed's objectives are to slow the economy, contain inflation and -- in this cycle -- contain the stock market, Bianco noted. "If you go through all the measures, none have done what the Fed wants. Yet, I don't see any sign the Fed is going to get aggressive."

Meanwhile, as I write this, John Lipsky, chief economist at

Chase Manhattan Bank

, is on

Business Center

attributing Tuesday's rally to a sense there must have been people in the market worried about a 50 basis-point rate hike. Hence, they were relieved when the Fed did "only" 25.

To which I can only say: Don't you believe it.

And Another Thing

So where is the market now if the Fed is -- indeed -- in its back pocket?

In pretty good shape from a technical perspective, according to Greg Nie, chief technical analyst at

First Union Securities

in Chicago.

On Thursday, the Dow broke through its 200-day moving average of 10,810, while the Nasdaq held above its 50-day moving average of 4424, after trading as low as 4467.53.

The Comp's ability to stay about 4400 is significant, because a decline below would break its 50-day moving average and "trend line" from October, Nie said. "It's good that we've held about that level twice now. It still leaves the Comp chart overall bullish, despite its short-term weakness."

Add to that, the S&P 500 setting an all-time closing high and, "overall, the technical picture is leaning in favor of the bulls," he said.

But that was before

Micron Technology

(MU) - Get Report

posted

earnings well-below expectations. Given all the good tidings surrounding the chip sector of late, Micron's report could send money fleeing back into the

new

New Economy stocks (the high-margined highfliers, in other words). To quote

JJC

: Hoo-hah!

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

taskmaster@thestreet.com.